Morningstar Report: Investors Flock to Alternatives in Q3

New York (HedgeCo.net) A recent report from Morningstar showed that investors are pouring in to alternative funds with the recent spike in volatility. The mutual fund and ETF research firm’s data showed that almost $4 billion was invested in alternative funds in the third quarter and that brought the total net inflow for the year up to almost $10 billion. What is interesting is that we featured a story at HedgeCo.net in June that talked about how inflows to alternatives were slowing. Here is an excerpt from that article:

“A recent Bloomberg article showed that the flow of capital into liquid alternatives has slowed considerably in 2015 and are down to levels not seen since 2008. In 2014, liquid alts saw a net inflow of $39 billion and that was down from a record-breaking $96 billion in 2013. According to the article, inflows for 2015 are a paltry $1.2 billion through the end of May.”

That was written on June 22, 2o15. As of that date, the S&P 500 was up 3.11% on the year and was in the midst of a range-bound market from mid-February that would last through mid-August. During this time period, the S&P never went lower than 2,040 and never went above 2,135. We have two different sources of information here, Bloomberg and Morningstar. The Bloomberg article from June stated that only $1.2 billion had flowed in to alternative funds during the first five months. Now the Morningstar report shows that almost $4 billion flowed in to the funds in the third quarter alone. While the math doesn’t really make sense, the fact that inflows have accelerated since the downdraft started in July is very telling about how investors are thinking.

Perhaps investors are starting to understand that alternative investments should be included in their portfolio construction and it isn’t necessarily in an effort to increase returns as much as it is an effort to reduce risks.

CNBC featured an article regarding the new data from Morningstar and that article included a quote from Ihor Szeremeta, managing director of U.S. Wealth Advisory Alternative Investments at BlackRock. Szeremeta stated, “The attraction of alternative funds is related to where the [traditional] asset markets are. It’s when things are unclear and other risks in a portfolio aren’t working well that investors count on alternatives to work for them.”

The inflows have to be a welcomed sign for fund managers as the industry saw net outflows late last year. That was the first time since the financial crisis in 2008 that alternative funds had seen a net outflow. Now that volatility has increased, investors are flocking back in to the space.

Rick Pendergraft
Research Analyst
HedgeCoVest

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